Oil producers power up on crude prediction

Oil producers were in vogue as Goldman Sachs predicted the price of oil will hit $110 a barrel in 2011.

"Non-OPEC production is about to enter in an unprecedented period of decline as the industry suffers the effects of a lack of new final investment decisions on major new projects in 2007-09 and an increasing decline rate on legacy fields," said Michele della Vigna, analyst at the broker.

The analyst went on to argue that this production drop-off, when combined with strong demand from non-OECD countries, will rapidly erode OPEC's spare capacity, leading to an increase in the oil price to $90 a barrel in 2010 and $110 a barrel the following year.

"This should benefit the energy sector, especially those companies that have invested to achieve production growth and the oil service companies that can take advantage of the new investment cycle," concluded Michele della Vigna.

BG Group, up 18p to £10.85, and Royal Dutch Shell, which gained 2p to £17.48, were Goldman Sachs' top picks.

Tullow Oil topped the leaderboard, surging 36p to £11.75 as Goldman raised its price target to £16.08 from £14.96. Goldman also lifted its price target on Cairn Energy, helping the shares put on 41p to £27.10.

Soco International perked up as Goldman Sachs pushed the idea that the company's stakes in Vietnamese oil fields make it an attractive target for a Chinese national oil group. "Although we believe that acquisition activity may not crystallise until after additional drilling has taken place, we believe it should still provide support to the share price," said Goldman Sachs. Soco shares gained 29p to £14.02.

In the oil services sector, Wellstream came into focus as Merrill Lynch highlighted the UK-listed group a likely takeover target. Analysts at Merrill Lynch raised their price target to 775p from 630p. The note follows chatter last week that Italy's Saipem has been running a slide rule over the oil services group. The shares gained 9½ to 665p.

However, Petrofac was hit by a downgrade to "underperform" from Merrill Lynch. The broker believes the company "is priced for perfection, offering no room for disappointment". The shares retreated 23½ to 951p.

Overall, the FTSE 100 just about managed to finish in positive territory for the first time in three days, putting on 2.93 points to 5082.2. However, the FTSE 250 lost 32.58 points to 9060.44.

GlaxoSmithKline jumped 21½p to £12.27 as the European Medicines Agency recommended approval of its Pandemrix swine flu vaccine.

Elsewhere, Compass put on 8½ to 359.8p after Nomura took up coverage of the caterer with a "buy" rating and a 495p price target.

In the media sector, traders chased BSkyB higher as it emerged ITV had given up on the idea of hiring Tony Ball as chief executive. BSkyB rose 13 to 573p and ITV lost 1.61 to 44.89.

Traders kept an eye on Cadbury as Eton Park, a big US hedge fund, upped its stake to 2.09pc from 1.89pc. The shares perked up 5½ to 800½p.

Worries about the outcome of the G20 meeting weighed on banks with Barclays slipping 5 to 240.8p. Lloyds Banking Group was the worst-performing banking stock amid renewed chatter it is set to push the button on a rights issue. The shares lost 3.6 to 103.4p.

Weak metal prices weighed on some of the mining stocks. Vedanta Resources fell 59p to £18.82 and Antofagasta slipped 15½ to 734½p.

However, Anglo American rose 30p to £20.59 amid vague speculation that Xstrata, down 11 to 904p, is about to submit a new bid for its rival.

Among the second-liners, a better-than-expected trading update helped Euromoney Institutional Investor put on 43.8 to 347.8p. The company said it expects full-year profits to exceed market expectations.

DSG International fell 1.3 to 26.6p as Morgan Stanley downgraded the company to "underweight". The broker advised investors to take profits following a 50pc increase in the share price over the past three months.

"We are concerned by the extent to which DSGi is underperforming its main peers in the UK electricals market, and believe that the most likely explanation is poor instore availability," added Geoff Ruddell, analyst at Morgan Stanley.

Small-cap Advance Computer Software, which supplies software for the NHS, gained 3 to 38½p amid speculation the company could carry out a large deal over the next weeks.

Entertainment One ticked up ½ to 37p on hopes the company will soon unveil a positive trading update.

Diageo was in focus amid mounting speculation that it is about to purchase LVMH's wine and spirits division. The talk comes from Paris-based brokers, who believe Bernard Arnault, the boss of LVMH, has made an approach for the fashion business Hermes. However, the approach is said to be conditional on LVMH obtaining financing from the sale of its wine and spirits division to Diageo. Diageo put on ½ to 966p.